The hydrophobic surfactant proteins, SP-B and SP-C, promote rapid adsorption by the surfactant lipids to the surface of the liquid that lines the alveolar air sacks of the lungs. To gain insights into the mechanisms of their function, we used X-ray diffuse scattering (XDS) and molecular dynamics (MD) simulations to determine the location of SP-B and SP-C within phospholipid bilayers. Initial samples contained the surfactant lipids from extracted calf surfactant with increasing doses of the proteins. XDS located protein density near the phospholipid headgroup and in the hydrocarbon core, presumed to be SP-B and SP-C, respectively. Measurements on dioleoylphosphatidylcholine (DOPC) with the proteins produced similar results. MD simulations of the proteins with DOPC provided molecular detail and allowed direct comparison of the experimental and simulated results. Simulations used conformations of SP-B based on other members of the saposin-like family, which form either open or closed V-shaped structures. For SP-C, the amino acid sequence suggests a partial α-helix. Simulations fit best with measurements of XDS for closed SP-B, which occurred at the membrane surface, and SP-C oriented along the hydrophobic interior. Our results provide the most definitive evidence yet concerning the location and orientation of the hydrophobic surfactant proteins.